UAE economy remains strong despite global uncertainty, says IMF

January 24, 2025 — The United Arab Emirates’ economy continues to exhibit robust growth, driven by strong domestic activity, according to a recent assessment by the International Monetary Fund (IMF). Despite global economic uncertainties and lower oil production due to OPEC+ agreements, the IMF projects healthy growth of around 4 percent in 2025.

An IMF team, led by Mr. Ali Al-Eyd, visited the UAE from January 14-22, 2025, to review the country’s economic and financial landscape. Following the mission, Mr. Al-Eyd issued a statement highlighting the key findings.

Non-Hydrocarbon Sector Driving Growth:

The non-hydrocarbon sector is experiencing a surge, fueled by tourism, construction, public spending, and the expansion of financial services. Strong capital inflows, attracted by business-friendly reforms, are contributing to a booming real estate market, driving up house prices. While hydrocarbon GDP is expected to grow above 2 percent this year, following OPEC+ production cut decisions and a gradual quota increase for the UAE, the non-oil sector is clearly taking the lead.

Healthy Fiscal Position and Controlled Inflation:

Despite projected declines in hydrocarbon revenue due to volatile oil prices and reduced production, the UAE is expected to maintain comfortable fiscal and external surpluses. The fiscal surplus is projected to moderate to around 4 percent of GDP in 2025, down from an estimated 5 percent last year. However, increased non-hydrocarbon revenue, driven by the ongoing implementation of the corporate income tax, is expected to offset some of this decline. Public debt remains contained at around 30 percent of GDP, and the current account surplus is projected at approximately 7.5 percent of GDP. International reserves remain healthy, covering over 8.5 months of imports. Inflation is projected to remain contained at around 2 percent in 2025, despite rising housing and utility costs.

Financial Stability and Monitoring:

The UAE’s banks are adequately capitalized and liquid, with improved asset quality in 2024. While robust domestic activity and credit demand have supported bank profitability, the IMF emphasizes the need for continued close monitoring of financial stability risks, particularly those associated with rising house prices. Banks' exposure to the real estate sector has decreased, but vigilance is still required. The IMF also welcomed ongoing improvements to the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework and progress under the Financial Stability Council. They also recommended that the regulation and supervision of crypto-related activities should adapt to market developments.

Addressing Global Uncertainties and Future Reforms:

The IMF acknowledged the heightened global uncertainty stemming from geopolitical and policy factors, which could impact the UAE’s economy through tighter financial conditions, weaker global growth, and oil price volatility. However, the country’s substantial financial buffers are expected to mitigate short-term risks.

Looking ahead, the IMF emphasized the importance of continued reform efforts to support medium-term growth and a smooth energy transition. Ongoing infrastructure investments, trade liberalization through Comprehensive Economic Partnership Agreements, and the development of a medium-term fiscal framework are seen as crucial for sustainable growth and addressing climate change challenges. Improved economic data collection and dissemination were also highlighted as important for reinforcing these efforts.

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